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BAE Systems: Corporate Rap Sheet

BAE Systems

By Philip Mattera

Formerly known as British Aerospace, BAE Systems has grown into one of the world’s largest aviation and weapons companies, with major operations not only in the United Kingdom but also in Australia, South Africa, Sweden, Saudi Arabia and the United States, where it is now one of the Pentagon’s largest contractors. In recent years, the company has been embroiled in a controversy over allegations that it paid bribes to officials in countries ranging from Saudi Arabia to the Czech Republic. An attempted merger with EADS collapsed in October 2012.

Bribery

For most of the past decade, BAE has been confronted with allegations that the company engaged in widespread bribery in its dealings with foreign governments. The charges began to receive significant attention in June 2003, when The Guardianreported that the U.S. government had privately accused BAE of offering bribes to officials in the Czech Republic. The Guardian went on to report that BAE was facing bribery allegations in three additional countries: India, South Africa and Qatar. Among the charges was that BAE had paid millions of pounds in secret commissions to obtain a huge deal, backed by the British government, to sell Hawk jets to South Africa. There were subsequent allegations that the company had formed a £20 million slush fund (later said to be £60 million) for paying bribes to officials in Saudi Arabia in the 1980s.

Despite denials by the company, Britain’s Serious Fraud Office (SFO) launched a criminal investigation of the bribery charges, focusing on the allegations regarding Saudi Arabia. BAE and the Saudi embassy reportedly lobbied intensively to have the probe terminated, and in December 2006 their effort paid off. The British government called a halt to the case because of national security concerns. (In April 2008 Britain’s High Court ruled that the termination of the investigation was unlawful, but in July 2008 the House of Lords overruled the court.) The SFO did, however, continue to investigate BAE’s questionable behavior in six other countries. The company was also being investigated by Swiss officials for possible money laundering violations.

Unable to escape these allegations, BAE announced in June 2007 that it would commission its own purportedly independent examination of the issues led by Lord Woolf, former lord chief justice of England and Wales. The Woolf Committee’s 150-page report, released in May 2008, stated that BAE’s top executives “acknowledged that the Company did not in the past pay sufficient attention to ethical standards and avoid activities that had the potential to give rise to reputational damage.” However, the report seems to have bowed to the wishes of the company that the focus be placed on the future rather than the past. The report provided what it called “a route map for the Company to establish a global reputation for ethical business conduct.” Among its 23 recommendations was that BAE “continue to forbid facilitation payments as a matter of global policy.” Given the less than draconian nature of the recommendations, it is no surprise that BAE agreed to adopt all of them.

A new front in BAE’s problems with questionable payments opened in late July 2008, when the Financial Timesreported that it had seen documents suggesting that the company had paid at least £20 million to a company linked to a Zimbabwean arms trade close to controversial President Robert Mugabe.

In February 2010 BAE reached settlements with the U.S. Justice Department and the UK Serious Fraud Office concerning the longstanding bribery charges. The company agreed to pay $400 million in the U.S. and £30 million in Britain to resolve the cases.

Confidential U.S. government cables leaked to the press by Wikileaks in 2011 indicated that BAE had paid more than £70 million in bribes to Saudi officials to support its bid for a a contract for fighter jets.

In July 2011 BAE subsidiary Armor Holdings Inc. agreed to pay $10.29 million to settle charges that it violated the Foreign Corrupt Practices Act during a period prior to its acquisition by BAE.

Government Contracting and Export Controls

In September 2002 BAE and Lockheed Martin agreed to pay the federal government $6.2 million to settle False Claims Act charges that a facility in Johnson City, New York that BAE purchased from Lockheed Martin had produced electronic aircraft components that did not meet contractual requirements.

In May 2011 the U.S. State Department announced that BAE would pay $79 million in fines and remedial measures to resolve charges that it violated the International Traffic in Arms Regulation more than 2,500 times through the unauthorized brokering of U.S. military items.

Environment and Product Safety

BAE received praise as well as some ridicule when it announced in 2006 that it was working on “green” munitions, including lead-free bullets, rockets with fewer toxic components and quieter warheads to reduce noise pollution. The bizarre notion of protecting the planet in the course of killing people was captured by the headline of an article about the project in the Times of London: “Watch Out, Sarge! It’s Environmentally Friendly Fire.”

In July 2007 the Maricopa County (Arizona) Air Quality Department announced that BAE Systems subsidiary Simula Inc. would pay $1.2 million to settle eight alleged air quality violations at several facilities in Phoenix.

Labor

In June 2009 the U.S. Equal Employment Opportunity Commission announced that Simula Inc., a subsidiary of BAE acquired two years earlier, would pay $110,000 and provide other relief to resolve charges that the company had engaged in gender and age discrimination.

In August 2009 the U.S. Occupational Safety and Health Administration cited BAE with 16 alleged serious and two alleged repeat safety violations at its facility in Sealy, Texas. The initial proposed fine of $134,000 was negotiated down to $78,800.

In January 2010 BAE Systems Land Systems (Munitions and Ordnance) Ltd was ordered to pay £80,000 in fines and £118,000 in court costs by the UK Health and Safety Executive after a worker was killed in an explosion at the company’s operation in Lancashire, where the agency said management had allowed unsafe working conditions to develop.

In December 2011 the U.S. Justice Department announced that BAE Systems Southeast Shipyards Alabama LLC had settled allegations that the company had engaged in discrimination by imposing excessive documentary requirements on work-authorized non-U.S. citizens.

In July 2012 the U.S. Equal Employment Opportunity Commission announced that BAE Systems Tactical Vehicle Systems, LP would pay $55,000 to settle a disability discrimination lawsuit brought by the agency.